Sunday, September 21, 2008

Betting on Financials and a Rally

I have been buying financial stocks on the bad news dips, and holding them. I think they are cheap, and a good long-term play. I bought on the bad news dips in July and August - especially on Aug 26 when I bought BAC, USB, GE, and KBH. And last week on Monday I bought more BAC on the bad news of AIG.

I also day traded on Monday. I bought AIG on Monday morning at about four bucks and sold it a few hours later for about five bucks. At one point I could have sold for over six bucks, but I got greedy and was hoping for seven or eight. When it started dropping I got out at $5.15 per share.

On Tuesday a hedge fund principal told me over dinner that I was very brave to buy BAC on Monday. I think he really meant that I was foolish. But I am now up about ten bucks a share since Monday, so I am not feeling so foolish. Perhaps I should sell now, take my profits and repurchase on the next dip.

However, I continue to expect a mild market rally into the end of the year, followed by a continuation of the bear market. I expect stocks to bottom sometime in 2009, with the Dow under 10,000.

I retired this summer which enabled me (politically) to sell some more company stock - and I did. I wish I could have sold more of it earlier.

My current allocation of investment assets is about 46% cash, 36% real estate, and about 18% stock. My stock position is heavily in the financials, and financial sensitive stocks.

I am still waiting for the bottom in stocks and real estate. I intend to go very long in both as the markets recover.


At September 23, 2008 8:55 PM, Anonymous Anonymous said...

Congratulations on your retirement and thanks for the latest post. We were beginning to wonder if you got stuck on the E train.

It is very interesting that you are beginning to nibble on selected financials as I think alot of us are still waiting to pull the trigger on that one.

At September 23, 2008 11:35 PM, Anonymous Zephyr said...

Thanks. I retired because I wanted a lot more free time. As a CEO it is very hard to work part time. So, more than 18 months ago I let the parent company know of my intent, and a replacement was selected. He worked as my understudy for a full year before I retired.

It is hard to walk away from a seven figure income, and the possibility of moving up to bigger CEO jobs, but I am glad to have the freedom.

I am working part time as a consultant to private equity investors, and I will also help start a business or two. But I will not run them.

As for selected financials, I think BAC is an excellent long-term stock - especially with the ML add on. In a few years I expect BAC will earn about $8-10 per share. So the price should rise to over $100. USB is a very solid company and will endure - another good long-term play at a temporarily low price.

I am now out of the KBH and GE stock positions. I have lost faith in GE. I never liked them - even when I ran a company for them. I do still have a small amount of GE in my old GE 401k account, and also I hold some BRK in another old 401k account. And I still have stock in my latest employer.

At September 24, 2008 12:44 AM, Anonymous Anonymous said...

I agree, as do many, about BAC and USB.

The more pressing question is: "To GS or not to GS", and if so at what price?

The question is largely theoretical as even the great Zephyr cannot be expected to know everything!

At September 24, 2008 1:18 AM, Anonymous Zephyr said...

I have no idea about GS, and am not willing to bet on what I do not know.

I play a slow waiting game, swinging only at what I think are fat pitches. This (combined with careful market timing) enables me to improve my odds significantly.


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